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San Diego schools spent $2.7 million on preschool staffing under a federal grant, then forfeited the money because district officials did not submit reimbursement paperwork on time, according to a recent district audit.

The loss happened in 2009. Similar issues came up this year, almost resulting in a $700,000 forfeiture.

The mistakenly forgone funds are coming to light at a time when school district officials have warned of impending insolvency and recently discussed shutting down more than a dozen campuses to save $500,000 for each one closed.

County Treasurer-Tax Collector Dan McAllister chairs the school district’s audit and finance committee, which discussed the audit in September. McAllister said that while the report should give taxpayers confidence that auditors are on top of things, it provides ammunition for naysayers who say the district shouldn’t seek any tax increases until it tightens its fiscal controls.

“It’s a shame because now people have to work doubly and triply hard to regain the public’s confidence,” McAllister said.

In their response to the audit, the district’s early childhood staff blamed the failure on inadequate staffing and turnover because of retirement and layoffs.

School district officials said they have responded to the report by authorizing the department to hire three staff members to oversee the contract — as well as asking other departments to monitor the situation.

The audit centered on the district’s early childhood programs, which have a budget of $32.4 million to offer programs for low-income families and teenage students with child care needs. The department receives money from district, state and federal funds.

The federal funds are distributed to the district by Neighborhood House Association, a nonprofit group that administers Head Start preschools, which are free to low-income families.

San Diego Unified hosts Head Start on 42 campuses and is eligible to be reimbursed from a $5 million federal grant. The two parties worked under a new contract in 2008-09.

According to the audit, the district made two mistakes in following that contract. First, it accounted for Head Start salaries in the wrong budget line item. Second, it missed deadlines to submit reimbursement paperwork within 30 days of the end of each month — and within 30 days of the end of the fiscal year.

“When the district went to Neighborhood House to receive the reimbursement, the money was gone,” said Stephen Carr, the district’s audit director.

The federal dollars were returned to the federal program for reallocation elsewhere, Neighborhood House officials said.

“It wasn’t submitted in a timely fashion for us to tell the government that this was a justifiable expense,” said Luis Gonzalez, Neighborhood House’s director of community affairs.

The school district risked losing more than $714,000 earlier this year because it had not spent at least 45 percent of the $5 million grant by Jan. 1, as outlined in the contract.

District officials received tentative approval in August to use Head Start money to replace four portable buildings at the Rowan Childhood Development Center.

On Dec. 9, Neighborhood House sent an email to the district’s early childhood staff, stating that the agency had been waiting for months for the district’s paperwork on the project and that the district would risk losing approval if the paperwork was not turned in by Dec. 17.

The district responded by submitting the paperwork Dec. 16. The reimbursement was then delayed because the district accounted for the project using the wrong budget line item, the audit found.

District officials said the delay occurred because the portable project came in under budget and did not need the Head Start funding. Officials requested and received approval to use the reimbursement for other projects, including furniture replacement at the Head Start sites.

A critic of San Diego Unified’s financial practices, Tierrasanta Community Council President Scott Hasson, said the audit report reinforces his concerns about the district.

“It’s a broken system,” Hasson said. “This is just another indicator that the district is disorganized and can’t get its own house in order. The district is insulated from accountability. When things like this happen, they don’t worry, because who is going to hold them accountable?”

The district’s early childhood education director, Sylvia Gonzalez, said both Neighborhood House and the district were going through growing pains.

“Being in the first year, both sides learned from it,” Gonzalez said of the 2009 mistakes. “We have worked on a tighter contract, so we have a better understanding on both ends. It has been cleared.”

Since 2010, Gonzalez said, the district has hired three staff members to assist the department: one who tracks the invoices needed for reimbursement, the other who tracks the budget, and a Head Start manager, paid between $76,449 and $97,745 annually, who will help the program better monitor the contract.

“That was the only year so far that there was any (unresolved) issue with the reimbursement portion and we don’t foresee it being a problem in the future,” Neighborhood House’s Gonzalez said.

“The department has gotten better each year, and this year, they are being fully reimbursed,” Rhinerson said. “I think the audit report definitely made us aware of some issues, and the department is responding to those issues.”